Question
The firm Forever Forever Co. produces Fancy Watches (TM) and must decide whether to accept a supplier's offer to provide an essential input: watchface glass.
The firm Forever Forever Co. produces Fancy Watches (TM) and must decide whether to accept a supplier's offer to provide an essential input: watchface glass. This supplier is willing to supply the input for $45 per unit. Forever Forever Co. requires 5,000 units of watchface glass every month.
Currently Forever Forever Co. produces watchface glass with its own machinery and labor. The machinery is leased for $175,000 per month, and labor salaries are $95,000 per month. Also about $10,000 of other costs per month are incurred from producing the input.
If the firm buys the part, all costs from making the input can be avoided.
Which of the following is TRUE?
a. | It is $55,000 LESS profitable to buy this input than to make it. | |
b. | It is $40,000 MORE profitable to buy this input than to make it. | |
c. | It is $55,000 MORE profitable to buy this input than to make it. | |
d. | It is $40,000 LESS profitable to buy this input than to make it. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started